4 ms·

The article suggests that the fees were comprised of management fees only. This is a common structure for "long only" management funds that limit their exposur

The article suggests that the fees were comprised of management fees only. This is a common structure for "long only" management funds that limit their exposure to public equities and are under significant restraints in how "creative" they are allowed to be.

jib 12y ago
But that is even worse, right? That is paying a fixed price for someone to gamble for you. If you look at it objectively, a more sane pricing model would be that you get a discount on the flat fees compared to what you would pay for a non-managed fund, but with a bonus paid on earnings. The value proposition from the fund managers is that they can significantly outperform a non-managed fund. If that is true, then what they lack is capital to actually play on a large enough scale (if they had the capital they would just play with their own money after all). Pension funds have a large amount of capital that they want to accrue interest on. The win-win scenario is that the fund managers agree to handle the money at a lower cost than what having them in some form of indexed managed would be, but that in return they take a share of any profits that are generated. If you just add on a flat % fee that is higher than what the indexed fund would charge, then the fund manager isnt assuming any risk.
- evandijk70 12y ago
  While this sounds good in theory, this encourages high-risk investments, that either pay-off enormously or lose everything.
  - ethbro 12y ago
    The point of parent is that there would be a discount to the fees based on underperforming the benchmark average. Followed to conclusion: a big enough loss = fees become negative and the hedge fund actually pays.
- danielweber 12y ago
  If you are the New York pension fund, you can shop around for someone to offer that. Unless it totally doesn't make sense.

4 ms·

The article suggests that the fees were comprised of management fees only. This is a common structure for "long only" management funds that limit their exposur

by hkmurakami 12y ago

jib 12y ago
But that is even worse, right? That is paying a fixed price for someone to gamble for you. If you look at it objectively, a more sane pricing model would be that you get a discount on the flat fees compared to what you would pay for a non-managed fund, but with a bonus paid on earnings. The value proposition from the fund managers is that they can significantly outperform a non-managed fund. If that is true, then what they lack is capital to actually play on a large enough scale (if they had the capital they would just play with their own money after all). Pension funds have a large amount of capital that they want to accrue interest on. The win-win scenario is that the fund managers agree to handle the money at a lower cost than what having them in some form of indexed managed would be, but that in return they take a share of any profits that are generated. If you just add on a flat % fee that is higher than what the indexed fund would charge, then the fund manager isnt assuming any risk.
- evandijk70 12y ago
  While this sounds good in theory, this encourages high-risk investments, that either pay-off enormously or lose everything.
  - ethbro 12y ago
    The point of parent is that there would be a discount to the fees based on underperforming the benchmark average. Followed to conclusion: a big enough loss = fees become negative and the hedge fund actually pays.
- danielweber 12y ago
  If you are the New York pension fund, you can shop around for someone to offer that. Unless it totally doesn't make sense.